Debt Ceiling Nears as Budget Talks Stymied

The Treasury Department said Wednesday the government would hit its legal borrowing limit by Monday, setting in motion emergency measures to keep the government operating for several more weeks and serving as a reminder that the nation's budget wrangling could continue well into 2013.

ENLARGE

Senate leaders will return Thursday, while the House won't be in session before the weekend. Above, Sen. John Hoeven (R., N.D.) last week.
Reuters

The Treasury Department says the U.S. is on track to hit the debt ceiling by Monday, setting in motion steps that might buy the government time before it faces a debt crisis. WSJ's Damien Paletta has the latest. Photo: AP.

The Treasury's financial maneuvering is designed to put off until February or March the prospect of a full-blown debt crisis. Treasury Secretary
Timothy Geithner
's
two-paragraph letter to Congress didn't specify when the emergency measures might be exhausted, blaming the "significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013."

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The White House and congressional leaders have shown no signs of progress toward crafting an agreement to avoid the year-end tax increases and spending cuts known as the fiscal cliff. President
Barack Obama
and Senate leaders will return to work Thursday, and they are running out of time to broker a deal before tax increases hit almost every working American.

A narrow deal to avert that outcome—a plausible result—might not include an agreement to raise the $16.394 trillion debt ceiling, as Democrats have pressed, meaning the big, unresolved questions over how the federal government should raise and spend money are likely to come to the fore as the debt deadline draws near.

The Geithner letter underscored how much the fiscal-cliff deliberations have frozen in place regular governmental activity. Mr. Geithner also said it wasn't possible to know whether the 2012 tax-filing season would be delayed.

When Mr. Obama and House Speaker
John Boehner
(R., Ohio) discussed a broad deficit-reduction agreement as recently as this month, the White House hoped to include a debt-limit increase that would put the issue to rest for two years or more. Mr. Boehner, in his final offer before talks collapsed, showed willingness to raise the debt limit for a year if Mr. Obama agreed to significant cuts in entitlement programs.

Political leaders are looking to advance a smaller package that focuses on blocking tax increases for most Americans and postponing or replacing scheduled spending cuts.

A senior Democratic aide said the prospect of including a debt-ceiling increase was "too much of a lift to pass either chamber" of Congress. The aide said he was "pessimistic" about the prospects of getting any bill through the Senate before Tuesday, which is Jan. 1, unless Messrs. Boehner and Obama strike a last-minute deal.

Mr. Boehner sent the House home on recess and said he would call members back with 48 hours notice if there was a deal to approve. Mr. Boehner held a conference call with his leadership team Wednesday and decided not to call lawmakers back, according to a senior House GOP aide. That means the House won't be in session before this weekend. Mr. Boehner will hold another conference call Thursday open to all House Republicans.

The Senate is scheduled to reconvene Thursday, with no measures related to the fiscal cliff scheduled. Mr. Obama cut short his vacation in Hawaii to return to Washington on Thursday to help work on a deal. The White House's goal is to determine what kind of deal might be acceptable to Senate Republicans.

The U.S. government has a hard limit on the amount of debt it can accumulate, and only Congress can raise it, which for years was a routine procedure. Without an increase, the U.S. would eventually default on its debt obligations, potentially sparking a financial crisis.

In 2011, the last time the Obama administration notified Congress about nearing the debt ceiling, Republicans said they wouldn't raise the limit unless the White House agreed to major spending cuts. That standoff led to the Budget Control Act of 2011, which included the spending cuts set to take effect next week. It also ultimately led Standard & Poor's Ratings Services to strip the U.S. government of its top-notch credit rating.

Moody's Investors Service, another ratings firm, said Wednesday that reaching the borrowing limit wouldn't change its top rating on the U.S., but it said the firm would downgrade the U.S. "if there is no solution in 2013 that produces a clear picture of the medium-term fiscal outlook and the medium-term debt trajectory."

Mr. Obama has said he wouldn't negotiate with Congress again over raising the debt ceiling, saying it is lawmakers' responsibility to authorize payments for debts the country has already accumulated.

Treasury has known for months that the debt ceiling could be reached in December, which analysts have said would mean the emergency measures would keep the government operating until about late February.

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